The government is likely to clear the price quoted by Reliance Industries Ltd [Get Quote] for its gas from the Krishna-Godavari basin without seeking to control the price.

"Depressing gas prices artificially will lead to arbitration, which we cannot hope to win," said a government official. He said a meeting in the law ministry a couple of days ago discussed the legal issues that might come up if the gas price was administered.

"The case for depressing prices was found to be weak," the official added.

He said as the production-sharing contract allowed for a market-driven price, the government could not afford to set a benchmark for administering prices under the New Exploration and Licensing Policy as the pricing formula for the RIL gas would apply to gas from the country's other deep waters as well.

"There are many such issues which we cannot overlook," the official added.

RIL, along with partners Oil and Natural Gas Corporation and British Gas, is selling gas from the Panna-Mukta and Tapti fields for around $4.75 per million British thermal unit (mBtu). It has "discovered" a well-head price of $4.33 per mBtu for its K-G basin gas.

The gas pricing issue is not likely to go to the petroleum regulator, though officials in the petroleum ministry say if the regulator decides the price, there will be no accusations of favouritism. "However, gas pricing is outside the scope of the regulator in its present form," a petroleum ministry official said.

The fertiliser and power ministries, which together consume around 70 per cent of the gas, said they should get supplies at a subsidised rate of less than $3 per mBtu. These companies get gas at an administered price from ONGC [Get Quote] and Oil India or use expensive naphtha or fuel oil.

They said since there was no efficient gas market in the country, as demand far outstrips supply, RIL could not claim to have discovered a market-driven price for its gas.

The government has been deliberating on the issue through a committee of secretaries led by the Cabinet secretary. "We are going to reach a decision very soon," the government official said.

The country's deep water and ultra-deepwater regions are believed to hold enough gas to meet the country's demand. The present demand is double the supply of around 85 million cubic metres per day (mcmd).

The government has projected the 2011-12 demand at 283 mcmd, against the domestic production of 108 mcmd and LNG imports of 82 mcmd.